S4 - Product innovation and development strategies.pdf

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Product innovation and
development strategies
SESSION 4
Mahesh Hemachandra
MBA (Australia), MSc in Mkt., BSc. (Hons) IT (UK),
MABE (UK), MBCS (UK), MCIM (UK), MCMI (UK)
What Is a Product?
Product as anything that can be offered to a market for attention,
acquisition, use, or consumption that might satisfy a want or need.
Products include more than just tangible objects, such as cars,
computers, or cell phones. Broadly defined, “products” also include
services, events, persons, places, organizations, ideas, or a mixture of
these.
Apple iPhone, a Toyota Camry, and a Caffé Mocha at
Starbucks are products.
Services are a form of product that consists of activities, benefits, or
satisfactions offered for sale that are essentially intangible and do not
result in the ownership of anything.
Examples include banking, hotel services, airline travel, retail,
wireless communication, and homerepair services.

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Levels of Product and Services
The most basic level is the core customer value, which addresses
the question What is the buyer really buying?
When designing products, marketers must first define the core,
problem-solving benefits or services that consumers seek.
A woman buying lipstick buys more than lip color. Charles
Revson of Revlon saw this early: “In the factory, we make
cosmetics; in the store, we sell hope.”
people who buy a BlackBerry smartphone are buying
more than a cell phone, an e-mail device, or a personal
organizer. They are buying freedom and on-the-go
connectivity to people and resources.

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At the second level, product planners must turn the core benefit
into an actual product.
They need to develop product and service features, design, a
quality level, a brand name, and packaging.
For example, the BlackBerry is an actual product. Its name, parts,
styling, features, packaging, and other attributes have all been
carefully combined to deliver the core customer value of staying
connected.
Finally, product planners must build an augmented product around the core benefit and actual product
by offering additional consumer services and benefits.
The BlackBerry is more than just a communications device. It provides consumers with a complete
solution to mobile connectivity problems. Thus, when consumers buy a BlackBerry, the company and its
dealers also might give buyers a warranty on parts and workmanship, instructions on how to use the
device, quick repair services when needed, and a toll-free telephone number and Web site to use if they
have problems or questions.

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Introduction
it is important to remember that product offerings in and of themselves
have little value to customers.
Rather, an offering’s real value comes from its ability to deliver benefits
that enhance a customer’s situation or solve a customer’s problems.
For example,
• customers don’t buy pest control; they buy a bug-free
environment.
• Lexus customers don’t buy a car; they buy luxury, status,
comfort, and social appeal.
• Students who frequent a local nightclub are not thirsty; they
want to fulfill their need for social interaction.
Marketers who keep their sights set on developing product
offerings that truly meet the needs of the target market are more
likely to be successful.
The Product Portfolio
Products fall into two general categories.
• consumer products: Products purchased for personal use and enjoyment
• business products: those purchased for resale, to make other products, or for use in a firm’s
operations
the products sold by a firm can be described with respect to product lines and product mixes.
• A product line consists of a group of closely related product items.
Procter & Gamble sells a number of famous brands in its line of house and home products,
including Tide, Bounty, Pringles, and Duracell. Most companies sell a variety of different
product lines.
• A firm’s product mix or portfolio is the total group of products offered by the company.
For example, Procter & Gamble’s entire product portfolio consists of personal and beauty
products, health and wellness products, baby and family products, and pet nutrition and
care products in addition to the products in its house and home line.

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Product and Service Decisions
Marketers make product and service decisions at three levels:
• individual product decisions,
• product line decisions,
• product mix decisions.
Individual Product and Service Decisions
Product and Service Attributes
• Developing a product or service involves defining the benefits that it will offer.
• These benefits are communicated and delivered by product attributes such as quality, features,
and style and design.

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Product quality
The characteristics of a product
or service that bear on its
ability to satisfy stated or
implied customer needs.
Product Features.
A product can be offered with
varying features. Features are
a competitive tool for
differentiating the company’s
product from competitors’
products.
Product Style and Design
Another way to add customer
value is through distinctive
product style and design.
Design is a larger concept than
style.
Brand
A name, term, sign, symbol, design, or a combination of these, that
identifies the products or services of one seller or group of sellers
and differentiates them from those of competitors.
Consumers view a brand as an important part of a product, and
branding can add value to a product. Customers attach meanings to
brands and develop brand relationships. Brands have meaning well
beyond a product’s physical attributes.

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Packaging
The activities of designing and producing the
container or wrapper for a product.
Traditionally, the primary function of the package
was to hold and protect the product.
In recent times, however, numerous factors have
made packaging an important marketing tool as
well.
Increased competition and clutter on retail store
shelves means that packages must now perform
many sales tasks—from attracting attention, to
describing the product, to making the sale.
Companies are realizing the power of good packaging to
create immediate consumer recognition of a brand.
For example, an average supermarket stocks 47,000
items; the average Walmart supercenter carries 142,000
items.
• The typical shopper passes by some 300 items
per minute, and from 40 percent to 70 percent
of all purchase decisions are made in stores.
• In this highly competitive environment, the
package may be the seller’s last and best chance
to influence buyers.
• Thus, for many companies, the package itself has
become an important promotional medium

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Labeling
Labels range from simple tags attached to products to complex graphics that are part of the packaging.
They perform several functions.
• At the very least, the label identifies the product or brand, such as the name Sunkist
stamped on oranges.
• The label might also describe several things about the product—who made it, where it was
made, when it was made, its contents, how it is to be used, and how to use it safely.
• Finally, the label might help to promote the brand, support its positioning, and connect with
customers.
For many companies, labels have become an important element in broader marketing campaigns
Labels and brand logos can support the brand’s positioning and add personality to the brand.
Product Support Services
Customer service is another element of product strategy. Acompany’s offer usually includes some
support services, which can be a minor part or a major part of the total offering.
Support services are an important part of the customer’s overall brand experience.
The first step in designing support services is to survey customers periodically to assess the value of
current services and obtain ideas for new ones
Many companies are now using a sophisticated mix of phone, e-mail, fax, Internet, and interactive voice
and data technologies to provide support services that were not possible before.

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Product Line Decisions
Beyond decisions about individual products and services, product strategy also calls for building a product
line.
The major product line decision involves product line length—the number of items in the product line.
• The line is too short if the manager can increase profits by adding items;
• the line is too long if the manager can increase profits by dropping items.
A company can expand its product line in two ways: by line filling or line stretching.
Product line filling involves adding more items within the present range of the line.
Product line stretching occurs when a company lengthens its product line beyond its current range. The
company can stretch its line downward, upward, or both ways.
Product line
A group of products that are closely related because they function in a similar manner, are sold to the same
customer groups, are marketed through the same types of outlets, or fall within given price ranges.
Product line length is influenced by company objectives and resources.
For example, one objective might be to allow for upselling. Thus BMW wants to move customers up from
its 1-series models to 3-, 5-, 6-, and 7-series models.

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Another objective might be to allow cross-selling: HP sells printers as well as cartridges.
Still another objective might be to protect against economic swings: Gap runs several clothing-store chains
(Gap, Old Navy, and Banana Republic) covering different price points.

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Still another objective might be to protect against economic swings: Gap runs several clothing-store chains
(Gap, Old Navy, and Banana Republic) covering different price points.
The different product lines at General Motors carry well-known brand
names like Corvette, Chevrolet, Cadillac, and Buick.

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FedEx offers a number of logistics and supply chain services in its family of brands, such as FedEx Express,
FedEx Ground, and FedEx Freight.

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Decisions regarding product lines and product mixes are important strategic considerations for most firms.
One of these important decisions is the number of product lines to offer,
• referred to as the width or variety of the product mix.
• the firm can diversify its risk across a portfolio of product offerings.
• can be used to capitalize on the strength and reputation of the firm.
• for example, Sony, enjoys this advantage as it uses its name to stake out a strong position in
electronics, music, and movies.
The second important decision involves the depth of each product line (assortment)
• Firms can attract a wide range of customers and market segments by offering a deep assortment of
products in a specific line.
• Each brand or product in the assortment can be used to fulfill different customer needs.
• For example, Hilton, Inc., offers 10 different lodging brands— including Hilton, Hilton Garden Inn,
Hampton Inn, Conrad, and Embassy Suites— that cater to different segments of the hospitality
market.
Sony, enjoys this advantage as it uses its name to stake out a strong position in electronics, music, and movies.

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For example, Hilton, Inc., offers 10 different lodging brands— including Hilton, Hilton Garden Inn, Hampton
Inn, Conrad, and Embassy Suites— that cater to different segments of the hospitality market.
Although offering a large portfolio of products can make the
coordination of marketing activities more challenging and expensive, it
also creates a number of important benefits:
Economies of Scale Offering many different product lines can create
economies of scale in production, bulk buying, and promotion.
Many firms advertise using an umbrella theme for all products in the
line.
• Nike’s ‘‘Just Do It’’
• Maxwell House’s ‘‘Good to the Last Drop’’ are examples of this.
• The single theme covering the entire product line saves
considerably on promotional expenses.

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Package Uniformity When all packages in a product line
have the same look and feel, customers can locate the
firm’s products more quickly.
It also becomes easier for the firm to coordinate and
integrate promotion and distribution.
For example, Duracell batteries all have the same copper
look with black and copper packaging.
Standardization Product lines often use the same component
parts.
For example, Toyota’s Camry and Highlander use many of the
same chassis and engine components. This greatly reduces
Toyota’s manufacturing and inventory handling costs.

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Sales and Distribution Efficiency When a firm offers many
different product lines, sales personnel can offer a full range of
choices and options to customers.
For the same reason, channel intermediaries are more accepting
of a product line than they are of individual products.
Equivalent Quality Beliefs Customers typically expect and
believe that all products in a product line are about equal in
terms of quality and performance.
This is a major advantage for a firm that offers a well-known and
respected line of products.
For example, Crest’s portfolio of oral care products all enjoy the
same reputation for high quality.
A firm’s product portfolio must be carefully managed to reflect changes in customers’ preferences and the
introduction of competitive products.
Product offerings may be modified to change one or more characteristics that enhance quality and/or style,
or lower the product’s price.
Firms may introduce product line extensions that allow it to compete more broadly in an industry.
The recent trend of flavored soft drinks, such as Vanilla Coke, Diet Pepsi Vanilla, Sprite Zero, and Dr.
Pepper Cherry Vanilla, is a good example of this.
Sometimes, a firm may decide that a product or product line has become obsolete or is just not competitive
against other products. When this happens, the firm can decide to contract the product line.
GM did when it dropped its Pontiac, Saturn, and Hummer divisions.

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The Challenges of Service Products
Products lie on a continuum ranging from tangible-dominant goods (salt, soap) to intangible-dominant
services (education, consulting).
Firms lying closer to the intangible end of this spectrum face unique challenges in developing marketing
strategy.
it is quite difficult for customers to evaluate a service before they actually purchase and consume it.
the demand for services is extremely time-and-place dependent because customers must typically be
present for service to be delivered.
Another major challenge for service marketers is to tie services directly to customers’ needs. Although
customers typically have few problems in expressing needs for tangible goods, they often have difficulty
in expressing or explaining needs for services.

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New Product Development
One of the key issues in product strategy deals with the introduction of new products.
The development and commercialization of new products is a vital part of a firm’s efforts to sustain
growth and profits over time.
The success of new products depends on the product’s fit with the firm’s strengths and a defined
market opportunity.
Market characteristics and the competitive situation will also affect the sales potential of new
products.
For example, new GPS devices are consistently being developed by manufacturers such as Garmin,
TomTom, and Magellan. However, the future of stand-alone GPS devices is unclear given that GPS
functionality is now an option on most new cars and is fully integrated into many wireless phones.

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There are six strategic options related to the newness of
products. These options follow, in decreasing degrees of
product change:
New-to-the-World Products (Discontinuous Innovations)
• These products involve a pioneering effort by a firm that
eventually leads to the creation of an entirely new market.
• New-to-the-world products are typically the result of
radical thinking by individual inventors or entrepreneurs.
For example, Fred Smith’s idea for an overnight
package delivery service gave us FedEx.
New Product Lines
• These products represent new offerings by the firm, but the firm
introduces them into established markets.
• Dell’s move to offer flat-panel televisions and small consumer
electronics is an
• Procter & Gamble’s launch of a national chain of car washes
is a new product line for the company.
• New product lines are not as risky as true innovation, and they
allow the firm to diversify into closely related product categories.

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Product Line Extensions
• These products supplement an existing product line with
new styles, models, features, or flavors.
• Anheuser-Busch’s introduction of Budweiser Select and
• Honda’s launch of the Civic Hybrid are good examples.
• Product line extensions allow the firm to keep its products
fresh and exciting with minimal development costs and risk
of market failure.
Improvements or Revisions of Existing Products
• These products offer customers improved performance or
greater perceived value.
• The common ‘‘new and improved’’ strategy used in packaged
goods and the yearly design changes in the automobile
industry are good examples.
• Clorox, for example, now offers ‘‘splashless’’ and ‘‘anti-
allergen’’ bleach in addition to its perennial ‘‘regular’’
bleach product.
• The common ‘‘shampoo plus conditioner’’ formulas of
many shampoos are another example.

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Repositioning
• This strategy involves targeting existing products at new
markets or segments.
• Repositioning can involve real or perceived changes to a
product.
• An example is Carnival Cruise Line’s effort to attract
senior citizens to supplement its younger crowd.
Although the new product development process varies across firms, most firms will go through the
following stages:
Idea Generation
New product ideas can be obtained from a number of sources, including customers, employees,
basic research, competitors, and supply chain partners.
Screening and Evaluation
New product ideas are screened for their match with the firm’s capabilities and the degree to
which they meet customers’ needs and wants.
Development
At this stage, product specifications are set, the product design is finalized, and initial production
begins.

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Test Marketing
As a final test before launch, the new product is test marketed in either real or simulated
situations to determine its performance relative to customer needs and competing products.
Commercialization
New product ideas are screened for their match with the firm’s capabilities and the degree to
which they meet customers’ needs and wants.
Many firms try to think outside the box in designing new
products.
for example, Kia turned to Peter Schreyer, a German
automotive designer, to reinvigorate the South Korean
company’s brand image. When he was hired away from
Volkswagen, Schreyer’s first task was to design two new
vehicles—the Kia Forte and the Kia Soul—to compete
against new designs from Nissan and Scion. He then
redesigned Kia’s popular Sorento SUV.
The results have been impressive: Kia’s sales increased
6.7 percent, while the company’s market share
increased 29 percent in the United States and 26
percent in South Korea. Kia’s success highlights the
importance of maintaining proactive product innovation
even in a down economy.

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Differentiating and Positioning the Product Offering
People sometimes confuse differentiation and positioning with market segmentation and target
marketing.
Product differentiation involves creating differences in the firm’s product offering that set it apart from
competing offerings.
Differentiation typically has its basis in distinct product features, additional services, or other
characteristics.
Positioning refers to creating a mental image of the product offering and its differentiating features in
the minds of the target market.
This mental image can be based on real or perceived differences among competing offerings.
Whereas differentiation is about the product itself, positioning is about customers’
perceptions of the real or imaginary benefits that the product possesses.
The process of creating a favorable relative position involves several steps:
1. Identify the characteristics, needs, wants, preferences, and benefits desired by the target
market.
2. Examine the differentiating characteristics and relative position of all current and potential
competitors in the market.
3. Compare the position of your product offering with the positions of the competition for each
key need, want, preference, or benefit desired by the target market.
4. Identify a unique position that focuses on customer benefits that the competition does not
currently offer.
5. Develop a marketing program to leverage the firm’s position and persuade customers that the
firm’s product offering will best meet their needs.
6. Continually reassess the target market, the firm’s position, and the position of competing
offerings to ensure that the marketing program stays on track and also to identify emerging
positioning opportunities

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The concept of relative position is
typically addressed using a tool
called perceptual mapping.
A perceptual map represents
customer perceptions and
preferences spatially by means of a
visual display.
Perceptual maps illustrate two basic issues.
First, they indicate products/brands that are similar in terms of relative mental position.
In the example perceptual map, customers are likely to see the offerings of Toyota and Honda as
being very similar. Positioning a brand to coincide with competing brands becomes more difficult
when many brands occupy the same relative space.
Second, perceptual maps illustrate voids in the current mindscape for a product category.
In the map, note the empty space in the extreme bottom-left corner. This indicates that consumers
do not perceive any current products to be both conservative and affordable.
This lack of competition within the mindspace might occur because
(1) customers have unmet needs or preferences, or
(2) customers have no desire for a product offering with this combination of dimensions.

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Differentiation Strategies
Generally, the most important tool of product differentiation is the brand.
Product Descriptors
Firms generally provide information about their products in one of three contexts
1. Product features, which are factual descriptors of the product and its characteristics.
2. Advantages are performance characteristics that communicate how the features make the
product behave
3. Benefits—the positive outcomes or need satisfaction they acquire from purchased products.
one aspect of a product’s description that customers value highly is quality.
Product characteristics that customers associate with quality include reliability, durability, ease of
maintenance, ease of use, and a trusted brand name.
In business markets, other characteristics, such as technical suitability, ease of repair, and company
reputation, become included in this list of quality indicators.
Customer Support Services
Providing good customer support services—both before and after the
sale—may be the only way to differentiate the firm’s products and move
them away from a price-driven commodity status.
Support services include anything the firm can provide in addition to the
main product that adds value to that product for the customer.
Examples include assistance in identifying and defining customer needs,
delivery and installation, technical support for high-tech systems and
software, financing arrangements, training, extended warranties and
guarantees, repair, layaway plans, convenient hours of operation, affinity
programs (e.g., frequent flier/buyer programs), and adequate parking.
If you buy a Kenmore refrigerator, for example, you can expect Sears to
provide financing, delivery and installation, and warranty repair service, if
necessary.

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Image
The image of a product or organization is the overall impression,
positive or negative, that customers have of it. This impression
includes what the organization has done in the past, what it
presently offers, and projections about what it will do in the future.
Examples of firms that have this ability include BMW, Mercedes,
Michelin, Budweiser, Campbell’s, Ritz-Carlton Hotels, Disney World,
and Princess Cruises.

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Positioning Strategies
Firms can design their marketing programs to
position and enhance the image of a product offering
in the minds of target customers.
To create a positive image for a product, a firm can
choose from among several positioning strategies,
including
• strengthening the current position,
• repositioning,
• attempting to reposition the competition.

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Strengthen the Current Position
The key to strengthening a product’s current position is to
monitor constantly what target customers want and the extent to
which customers perceive the product as satisfying those
For example, a firm known for excellent customer service
must continue to invest time, money, talent, and attention to
its product position to protect its market share and sales
from competitive activity.
Strengthening a current position is all about continually raising
the bar of customer expectations.
Repositioning
At times, declining sales or market share may signal that customers have lost faith in a product’s
ability to satisfy their needs.
In such cases, a new position may be the best response, as strengthening the current position may
well accelerate the downturn in performance.
Repositioning may involve a fundamental change in any of the marketing mix elements, or perhaps
even all of them.
Some of the most memorable marketing programs involve attempts to move to new positions.
The ‘‘Not Just for Breakfast Anymore’’ campaign for orange juice and the ‘‘Pork: The Other White
Meat’’ campaign are good examples.

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A continuing example is Cadillac’s attempt to reposition the brand because of the aging of its
traditional target.
The erosion of Cadillac’s share of the luxury car market has forced the company to focus on and
attract younger audiences to the brand.
Cadillac’s recent marketing programs have been headlined by the ‘‘Fusion of Design and
Technology,’’ ‘‘Heritage Reborn,’’ ‘‘Break Through,’’ and ‘‘It’s a Lifestyle’’ campaigns.
In some cases, repositioning requires a focus on new products.
For example, Sony, the third-largest camera manufacturer in the world (behind Canon and
Nikon), was not taken seriously as a camera brand until it launched the Alpha—a digital SLR
(single-lens reflex) camera aimed at the high end of the market. Before the Alpha, Sony offered
only pointand-shoot models
Reposition the Competition
In many cases, it is better to attempt to reposition the
competition rather than change your own position.
A direct attack on a competitor’s strength may put its products in
a less favorable light or even force the competitor to change its
positioning strategy.
We are all familiar with the dueling campaigns of Microsoft
and Apple, Coke and Pepsi, and Pizza Hut and Papa John’s.

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Managing Products and Brands Over Time
Managing Products and Brands Over Time

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